Forward Rate Agreements
From FXPedia
A forward rate agreement (FRA) is a derivatives-based financial instrument in which one party (the buyer or borrower) agrees to pay a fixed interest rate to another party (the seller or the lender). The fixed rate is calculated for a specified notional amount (i.e. the principal) that is owned and held by the seller of the FRA.
In return for payment of the fixed rate, the buyer receives the proceeds the notional amount earns based on the floating reference rate. A common benchmark for the floating rate is the LIBOR rate.
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